.Wait a sec , fracking companies are a capitalism joke they loose money hand over fistnevertheless , banks fall over themselves to give them running finances knowing full well they will be bailed out by daddy federal treasury should things get tight it would seems to me there is a deliberate endeavor to pump oil even if it's little more than a Ponzi scheme just to stuff the crude oil market for Russia ,Iran ,Venezuela .....whatever !

it actually make sense to keep the price of oil low ....plenty of geopolitical gravy as for doing it with greenback IOU , no problem either , plenty of sucker for it things are rosy and the future is fine ....or is it ?

Assuming the entire fracking industry loses money all the time is a typical doomer fantasy. Nonsense.

No business, or competent bank, signs up to lose lots of money over the life time of a planned project, whether doomers bray that "reality" or not.

Hint: Many fracking projects pay off in a year or two. That's what ATTRACTS SO MANY players to that space.

Bigger hint: The massive cumulative profits over the remaining years, requiring little maintenance, as the frack play plays out, is just gravy to the frackers.

...

But let's pretend that a likely short term spike downward in oil prices is inevitable economic doom. After all, it's among the best theories the fast crash doomers have, since is actually has SOME chance of coming true!

And of course, it completely IGNORES, how great the windfall to the average consumer is, if gasoline prices manage a significant sustained drop.

But of course, shhhhhhhhhh. We don't want to talk about that here. Some fast crash doomer might get upset at looking at the data in a balanced way.

Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.

Disclosure: Bravery isn't my strong suit, so I'll likely only edge in, gradually, tentatively feeling for the bottom. Moderate gains over time are fine with me, if I can avoid massive losses due to greed. YMMV

Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.

Does anybody know anything about the relative strengths of the off-shore drillers? At some time oil will come back. When it does, if fracking is toast, off-shore is the next place to go. The current prices are attractive, except that they come with the possibility of bankruptcy. Right now, you can buy 100 shares of something that may eventually go up to over $50 a share for less than $50.

The Russians don't care too much about off-shore, unless you consider the Arctic. Developing that is very far out. These current cheap prices are due to Russian planning. The cheap ruble is helping them. They had to show some restraint, but they engineered the chance to drive oil lower and sink fracking. They've been out thinking Donnie for some time. Now, they've got him where they want him. The US could be on their doorstep, but Donnie wants to pack it up and go home, the pussy. His anti-globalist agenda led him here, and the Russians made it look like it was a great idea.

evilgenius wrote:Does anybody know anything about the relative strengths of the off-shore drillers? At some time oil will come back. When it does, if fracking is toast, off-shore is the next place to go.

Why would all fracking be "toast" due to a short term panic caused by an unexpected pandemic?

It's not like the technology, or its advantages, have gone away.

It's not like magically, offshore drilling has suddenly become dirt cheap, even in the face of relatively cheap oil.

If nothing else, the volatility in financial markets, including oil, should teach us that temporary fear-driven price changes do NOT equate to guaranteed long term pricing trends.

Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.

evilgenius wrote:Does anybody know anything about the relative strengths of the off-shore drillers? At some time oil will come back. When it does, if fracking is toast, off-shore is the next place to go.

Why would all fracking be "toast" due to a short term panic caused by an unexpected pandemic?

It's not like the technology, or its advantages, have gone away.

It's not like magically, offshore drilling has suddenly become dirt cheap, even in the face of relatively cheap oil.

If nothing else, the volatility in financial markets, including oil, should teach us that temporary fear-driven price changes do NOT equate to guaranteed long term pricing trends.

I'm biased toward off-shore. Fracking will run its course. No, I don't think fracking is over right now. Whether it will be profitable enough to make the sort of promises it has up until now at the prices it can gain for a while is questionable, though. At some point off-shore will be what remains outside of the giant established fields. Fracking takes the sort of financial system backing it that America provides. The rest of the world doesn't necessary provide that. Yes, the amount of production American fracking has produced has been a game changer. When it goes away, it's likely, at least for a short while, that the world will utilize what has worked before. The off-shore plays are very cheap now. I'm looking for a company, however, that won't go bust either now, or over the next five years. A company that will be able to take advantage of the situation, if it develops.

Whether it will be profitable enough to make the sort of promises it has up until now at the prices it can gain for a while is questionable, though. At some point off-shore will be what remains outside of the giant established fields. Fracking takes the sort of financial system backing it that America provides. The rest of the world doesn't necessary provide that.

You are confusing what is required to produce oil from tight formations economically versus what is required to keep production in the US at its high rates. The break even for the unconventionals is largely much lower than it is for offshore and certainly much lower than it is for deep and ultra-deep water. Onshore unconventional companies have tried to accelerate their growth by taking on large debt which allows them to increase land holdings and drill more wells, hence increasing their production and the theory used to be increasing share price. But they don't need to do that, they could easily be happy with drilling profitable wells and staying within cashflow which of course would mean they couldn't grow at the rate they desired. Going forward that is probably what is going to happen, much less drilling, little in the way of debt acquisition and hence lower overall production. The offshore especially deep and ultradeep water is not going to take off again until prices stay above $65 - $70 for some period of time. Fracking in places like Argentina is being done by large companies like Shell, Exxon and Chevron. They can fund their activities themselves.

Rockdoc, it appears there's some goal post moving going on. What you are saying is pretty logical but its no "shale miracle". Its so much smaller that its not even worth talking about and I agree with you, that's what will happen. It won't utilize very many drilling rigs or personnel and it won't move the needle very much. Its going to turn out to not be so sexy.

Its not unlike the goal post moving of us Peak Oilers when this unprofitable shale oil came to the market. It was irrational exuberance brought on by cheap money looking for a place to work after the 2008 market crash. Why would peak oil people account for something like that when trying to predict future production? So yes we moved the goal post. Although I think it was for a better reason than folks who initially believed in the extreme growth potential of shale.

Like I said a few months ago on the economy as a whole in the market crash thread. Lets see what happens.

I've been wondering if the place to be isn't in one of the majors. Small time players may suffer enough that the majors consolidate them. If they can self fund in good places to frack, that works in their favor. They also do off-shore, so no worries about missing out there.

At some point, the Middle East is going to become much more important than it even is today. They will be the last ones with consistency. They have most of the big fields. They also come with huge political risk. That risk alone may boost off-shore in places like West Africa. Not that it would take very much to destabilize a country like Nigeria, if oil became too important.

I think it's the great tragedy of this time that the current administration has played into Putin's hands. They have taken a situation where over some time, using a globalist approach, Russia has been forced to back pedal. The Russians do fear an eventual US invasion of their oil producing regions. That fear is behind everything they are doing in Syria, Iran and elsewhere in the Middle East and the surrounding regions. How Trump undermined that policy in Ukraine and elsewhere, receiving praise for it, astonishes me. It also proves to me that the US cannot be trusted to get the future right. The US seems unable to quell some prideful impulse that worships something that passes for self-determination, but is really more like xenophobia and a form of exceptionalism that never tests itself to see if it is true, or wallowing in its own praise.

wildbourgman wrote:Its not unlike the goal post moving of us Peak Oilers when this unprofitable shale oil came to the market.

There is no universal adjective to apply to shale oil. Its profitability is a moving target.

The problem is that unconventional is having to compete head on with conventional. This is why we have a re-run of the last glut going on where the Saudis are pumping flat out in order to maintain market share and beat down shale. They will NOT kill shale, only temporarily stall it. As long as recoverable shale remains, drilling will resume once the price creeps back up again, which it must as conventional supplies dry up.

BOLD PREDICTIONS-Billions are on the verge of starvation as the lockdown continues. (yoshua, 5/20/20)

HALL OF SHAME:-Short welched on a bet and should be shunned.-Frequent-flyers should not cry crocodile-tears over climate-change.

Yup, but that’s the way the oil and gas business was for much of early career. If you have a small company it makes a lot of sense given you aren’t very interested in what total production from North America is, all you care about is what your net free cash flow is and how you can reward your shareholders. Given the stock market won’t yield large returns for these guys I’m guessing many will be private entities with a small shareholder base and the company will distribute cash in some manner each year to those individuals. And certainly production will be lower because of this but as we all know the cure to low oil price is low oil price and as demand continues to grow prices will rise and we will be back in the next cycle. Some banker somewhere will see and opportunity to fund an unconventional company given it can be scaled up quite quickly and voila you are back to where we were.

Its not unlike the goal post moving of us Peak Oilers when this unprofitable shale oil came to the market.

You seem to have bought into the nonsense being spewed by those who only look at net free cash flow as a measure of profitability. Many of these companies have grown cashflow from operations significantly over the time they have been in business. When you look at revenues minus all costs many are still churning out hundreds of million to billions each year in cash flow. But given they are mostly not dividend companies and count on growth via share price increase all of the cash they generate after costs (including debt financing and retirement) goes to further growth through land acquisition or drilling/completing. This looks like zero net free cash flow but in reality the companies has grown their production and revenues by investment. We know that many of the shale companies were making profits that could be reinvested simply by looking at the calculated break even costs (Rystad or others) for the various basins. There were select spots in the Permian and Eagleford where break even costs were in the high twenties and the average across the Permian as an example was something close to $40. That breakeven cost includes the cost of land, drilling and completing and tie-in post royalties. What that means is if oil prices are where they are now nobody will drill unless they are hedged at $40+ (which some are for the next year) but they can continue to produce since the field operating cost is actually sub $10.

My prediction is we are going to see a repeat of what happened a few years ago when price dropped. Eventually the oil industry in the US dropped production, consolidated and stopped any new drilling. It took a year for this to appear in the system because there were still banks willing to loan money to oil and gas companies and those companies were able to cut costs. This time around the cost cutting has taken place quite awhile ago and the banks have declined to go anywhere near oil and gas lending for sometime. To my mind that means the response time will be quick depending on how hedged companies are. I read somewhere today that analysts are looking at a 20% decline in US production this year which is pretty significant.

The problem is that unconventional is having to compete head on with conventional.

which is what the Saudis want....but they needed it to happen in a game which was even-sided. This wasn't the case last time around where unconventional oriented companies could still raise money through equity and debt. They can no longer do this and must fund their activities organically which means growth rate will slow putting them in the same game as the Saudis who have much, much lower full cycle replacement costs. A bit like putting Pee Wee Herman in the ring with George Foreman in his hayday.

What you just described is already occurring as several operators have just announced slashes in 2020 CAPEX budgets in the 20 to 25 % range.

In addition to optimally aligning contracts with subs to anticipated revenue (related to the hedging that you mentioned), the upstream boys seem - once again - to be buckling up for the next go round on this roller coaster.

One thing for you to be mindful of, perhaps, (the peak oil folks seem long ago to have become resistant to unpleasant facts and - consequently - have increasingly become untethered from reality) is the degree to which drilling and completion processes have advanced these past 2/4 years.

The recovery factor in certain areas is ~20% OOIP with the use of diverters and newer iterations of High Viscosity Friction Reducers near eliminating frac hits while enabling MUCH higher percentage of proppant loading.

Bakken D&C costs are under $5 million per for many operators and Marathon just brought online a 4 well pad with average cost at $4.3 million per.

Once again, when the dust settles, people will be shocked at just how resourceful, tenacious, resilient these upstream boys truly are.

The four are Exxon, Chevron, Occidental, and Crownquest....all with positions in Texas.

Some of the other shale companies can get by for a while completing wells that have already been drilled.....but if the Saudi price war goes on for a while then there will be 100+ fracking companies and service companies all slowing down with some in serious trouble and looking for buyouts, loans, or bankruptcy attorneys.

$30 bbl oil is going to push some US fracking and service companies towards bankruptcy....

New York (CNN Business)Vladimir Putin knows America's fragile oil industry is built on a mountain of debt. So when Saudi Arabia called for production cuts to mitigate oversupply, Putin decided to pounce.Russia shocked the world last week by blowing up its shaky alliance with OPEC. Moscow's refusal to join with the cartel is aimed in part at drowning US shale oil companies that rely on higher prices in a sea of cheap crude.Putin's goal is to wrest market share back from American frackers, whose debt-fueled growth caused Russia to lose its title in 2018 as the world's largest oil producer.

"This is a response to try to cripple the US shale industry," said Matt Smith, director of commodity research at energy research firm ClipperData.

Oil prices crashed Monday after Saudi Arabia said it would slash oil prices, launching a ferocious response against Russia's move. US crude plummeted 26%, its worst day since 1991, to a four-year low of $31.13 a barrel.Crude is now so cheap that many US shale companies will be forced to cut production. Bankruptcy fears are already rippling through the oil patch, sending the SPDR S&P Oil & Gas ETF (XOP) to its lowest price on record going back to 2006. ............https://www.cnn.com/2020/03/10/business ... index.html

Blessed are the Meek, for they shall inherit nothing but their Souls. - Anonymous Ghung Person

The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.-- Abraham Lincoln, Fragment on Government (July 1, 1854)

Just five shale drillers—Exxon, Chevron, Occidental, and Crownquest—can drill new wells at a profit at $31 per barrel of West Texas Intermediate.

What they are talking about is full-cycle breakeven cost, not field operating cost (often referred to as lifting cost).

Field operating cost for much of the tight unconventional sits somewhere below $10/bbl. These wells are generally completed in such a manner that well intervention is only necessary when there is downhole tool failure, casing collapse of perforation plugging from migrated fines. That is by no way a universal event in wells so the costs to keep “lifting” are simply electricity costs and surface maintenance costs with respect to wellheads and gathering lines.

If everyone stops drilling (which they won’t until such time as hedges disappear) then there will be a relatively quick fall in production of wells drilled in the past 2 years whereas those drilled previously will continue to tick along at current rates due to the typical two-stage decline production profile recognized in these wells. This will result probably in about a 20% decrease in US production which will be healthy for world prices.

As I have said several times before the industry has needed some consolidation for a long time. Too many small players at the fringe who are barely eking out a living. This is the best opportunity for consolidation to happen. Generally, that is a much better outcome for small companies who have suffered through the double whammy of lower prices over the past couple of years and a new oil price war than Chapter 11 restructuring. Consolidation is healthy for the industry and needs to happen.

"Oil price crash: 50% of US shale could go bankrupt."https://oilprice.com/Energy/Crude-Oil/O ... ews+Update) But I believe there will be no shortage of idiots willing to buy their assets for pennies on the dollar and start a new shale boom. It probably will never be the same, but those plays are not played out, and there is a sucker born every minute in the USA. Same as it always was!

I think the question now is how low will oil go? I think when the Coronavirus peaks in another month we will have our overreaction in oil. Could be a good way to make 2-3X on your money. I did this in 2008. Getting ready to do it again.